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Kuby’s Commentary

Don’t Press the Panic Button

Oct 4, 2021

Panic or Pivot?

In the 1995 classic animated film “Toy Story” in a time of crisis Buzz Lightyear proclaims “Sheriff, this is no time to panic…” to which Sheriff Woody replies “This is the perfect time to panic!”

Sheriff Woody would probably be experiencing incredible trepidation with elevated inflation, the possibility-albeit remote-of a government default, higher proposed taxes, tightening monetary policy, a volatile geopolitical landscape, China’s new anti-business policies, supply chain disruptions, disquieting partisan bickering in Congress, global warming, and last but certainly not least, the global pandemic.

Indeed, investors have shown some signs of panic, with substantial outflows from equity funds in September leading to the worst month in the stock market since March 2020 when COVID-19 shut down the economy.  In the latest week the S&P 500 declined 2.21%, the Nasdaq dropped 3.20%, while the Russell 2000 slipped a modest 0.29%.  The strength in the U.S. Dollar, on the other hand, supports the “no time to panic” philosophy, as it reached a 52-week high. Additionally, the yield on the Ten-Year-Treasury went round trip from 1.46% up to 1.55% and then back to 1.46%.  In other words, the currency and fixed income markets are not displaying the stress that would seem warranted by the laundry list of concerns.

The stock market staged a decent rally on Friday, seemingly triggered by a study showing Merck’s experimental Covid-19 pill cut in half the risk of hospitalization or death from the virus. The Energy, Finance, and Industrial sectors that would expect to benefit most from a pickup in economic activity all outperformed. The trend in new cases continued to improve, while daily deaths and hospitalizations finally turned down. We continue to favor small cap value stocks, such as our holdings in our North Star Dividend Fund (NSDVX) and North Star Micro Cap Fund (NSMVX), if the domestic economy improves.  Gold gained fractionally during the week after touching its lowest level since April. Even though Gold remains unchanged from its July 2020 level, we still believe it offers a nice hedge to other financial investments, particularly in periods of panic.

There was no panic in the stands at Soldier Field on Sunday as the Bears coasted to a 24-14 victory over the winless Detroit Lions. In WNBA action the Chicago Sky took a 2-1 lead in their semi-final’s series against the Connecticut Sun. In baseball, the Chicago White Sox finished the regular season strong and look ready to take on the Astros in the AL playoffs starting Thursday in Houston.

Commotion on Capitol Hill

The Bureau of Labor Statistics will release the jobs report for September on Friday. The consensus forecast calls for the economy to have added 425,000 positions following a 235,000 increase in August. In recent months these estimates have been wildly inaccurate, so fasten your seatbelt when this number comes out. It is the last employment report before the November FOMC meeting, during which the timetable for reducing bond purchases by the Fed is expected to be outlined. Fed Chairman Jerome Powell recently opined that it would take a “reasonably good” employment report to proceed with tapering the $120 billion in monthly security purchases.

The other Economic reports due out include updates on factory orders, the trade balance, and consumer credit.

Earnings season is on deck, with estimates calling for a 27.6% year-over-year growth in S&P 500 results. The forward-looking comments, particularly as it relates to supply chain and other cost pressures, will be closely scrutinized. The market is trading at approximately 20.8 times forward earnings, which is about 20% higher than the historic average of 16. That elevated P/E seems justified based on the persistent extraordinarily low-interest-rate environment.

No doubt there will be drama on Capitol Hill. History suggests this dissonance ultimately resolves itself.

Stocks on the Move

-10.8% 1-800-Flowers.Com Inc (FLWS) is an e-commerce provider of floral products and gifts. The Company’s product offerings include fresh-cut and seasonal flowers, plants, floral arrangements, home and garden merchandise, and gift baskets. There was no significant company news last week.

FLWS is a 2.9% position in the North Star Micro Cap Fund.


-11.6% Madison Square Garden Entertainment Corp (MSGE) produces, presents, and hosts various live entertainment events, including concerts, family shows, and special events, as well as sporting events, in its venues including New York’s Madison Square Garden, Hulu Theater, Radio City Music Hall, the Beacon Theater, and The Chicago Theater. The Company also operates entertainment dining and nightlife venues in New York City, Las Vegas, Los Angeles, Chicago, Singapore, and Australia under the Tao, Marquee, Lavo, Avenue, Beauty & Essex, and Cathédrale brand names. The stock was down last week after Comcast dropped the MSG Network and its programs right as the NHL and NBA seasons were about to commence.

MSGE is a 1.7% position in the North Star Opportunity Fund.

The information provided in this commentary is not an offer to sell or the solicitation of an offer to purchase any security, product, or brokerage service. The information is not intended to be used as the basis for investment decisions, nor should the information be construed as advice designed to meet the particular needs of any investor. This commentary is presented to illustrate examples of the securities that North Star Investment Management Corporation and/or its affiliates (“North Star”) may have bought for client accounts and the diversity of markets in which North Star Investments may invest, and may not be representative of current or future investments. You should not assume that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary will be profitable or will be equal to any corresponding performance levels that might be indicated. Past performance is no guarantee of future results. Investments in securities involve risks including the possible loss of the principal invested. North Star and others associated with it, including employees, may have positions in and effect transactions in securities of companies mentioned or indirectly referenced in this commentary. North Star may buy, sell or hold these securities in proprietary or client accounts. North Star will not be providing regular updates or advising you of any changes in the views expressed herein. Investors should consider their investment objectives, risk tolerance, and financial situation and needs before investing in any security. Tax considerations, commissions, fees and other costs should be carefully evaluated with one’s investment and/or tax advisors. Information provided is obtained from sources deemed to be reliable, but North Star cannot guarantee the accuracy or completeness of the information. This material may not be reproduced, distributed or transmitted to any other person in whole or in part without the prior written consent of North Star. A copy of North Star Investment Management Corporation’s Form ADV Brochure, Privacy Notice and Business Continuity Plan summary can be obtained by calling 312-580-0900.

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